Your own pension and the estate from April 2027
How the change to inheritance tax on pensions affects your own pension and the timing of your exit.
How the change to inheritance tax on pensions affects your own pension and the timing of your exit.
From 6 April 2027, most unused pension funds and pension death benefits are due to be counted in the value of a person's estate for inheritance tax. This article is about your own pension, and what the change does to the way a principal plans the end of a firm.
This article is not advice. It describes the rules as they stand in October 2026 and the questions they raise. Ask your own accountant and another financial planner to do the calculations.
For a director of a small advice company, employer pension contributions have long been a tax-efficient way to take value out of the business. The company gets a deduction, the money grows outside the estate, and on death it could pass to the next generation without inheritance tax.
If your own plan was built on that last point, it needs looking at again. The pension was the pot to leave untouched, and the proceeds of the sale, savings and other assets were the money to live on. That ordering made sense while the pension sat outside the estate. From April 2027 the reasoning behind it changes.
From 6 April 2027, unused pension funds and most death benefits are due to be added to the estate when inheritance tax is worked out. The nil-rate band of £325,000 and the residence nil-rate band of £175,000 still apply, and so does the exemption for assets left to a spouse or civil partner. Death-in-service benefits paid from a registered pension scheme are outside the change.
The income tax rules on inherited pensions continue alongside. Where the member dies after 75, beneficiaries pay income tax on what they draw. For a large pension, the same pound can carry inheritance tax on death and income tax when the beneficiary draws it.
A principal who sells usually has two pots arriving at roughly the same time: the proceeds of the sale and a pension that has been funded for years. After April 2027 the order in which to spend them depends on the size of each, the age you are when you stop, who you want to leave money to, and how each pot is taxed on the way in and on the way out.
It also changes the question of whether to keep making company pension contributions in the final years. Contributions still attract relief going in. What they are worth to the family afterwards has changed, and the comparison with taking the money another way needs doing again.
Under a conventional sale, the date the money arrives is set by the buyer and the deal. Under Securo the exit date is yours, and the structure is agreed firm by firm. That gives you room to line the exit up with your own pension and estate planning: which tax year the proceeds fall into, how much is paid at the start and how much later, and whether you keep an income from advising while you draw on the pension.
This does not settle the tax position. It lets you make the decisions on your own planning timetable.
Ask another adviser to answer these questions for you. A principal planning their own exit has the same blind spots as any client doing their own planning.
Securo does not give you tax advice and does not set your pension strategy. It moves compliance, paraplanning and administration to Equity & General so that you have the time to do this planning, and it lets you choose when the exit happens. The floor on the price is agreed in writing before you join, which means you can plan around a known basis for the sale.
The relief is still there, at a higher rate than before, and whether it applies depends on what is sold, by whom, and how the money reaches you.
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Read itSteven Bates, Director of Advisory at Equity & General, takes the first call with every adviser. Ring him on 020 8396 0486 or send a short note about your firm.